Valuing Lives Equally and Welfare Economics

Welfare economics, in the form of cost-benefit and cost-effectiveness analysis, is at present internally inconsistent and ethically unappealing. We address these issues by proposing two ethical axioms: society prefers Pareto improvements and society values lives lived at a "standard" level of health and income equally. We show that there exists a unique social preference ordering satisfying these axioms. Welfare economics is reconstructed to produce rankings consistent with this social preference ordering. The result is we should always measure willingness to pay in life years, not money units. A standardized life year becomes an interpersonally comparable unit of value.aging, health, welfare economics

Contraception and the Celtic Tiger

New cross-country evidence for 1965 to 1995 is presented on the link that runs from population change to economic growth. The estimates indicate that demographic change is a powerful determinant of income growth, operating mainly via the effect of changes in age structure. The estimates also indicate that the benefits of demographic change can be greatly magnified by a favourable policy environment. A case study of economic growth in Ireland suggests that the legalisation of contraception in 1980 resulted in a sharp decline in fertility and a sizeable increase in the relative share of the working-age population. This demographic shift, operating in conjunction with a favourable policy environment, can explain in large measure the birth of the Celtic Tiger. However, given demographic projections for Ireland, the Tiger’s roar may become less formidable as it continues to mature.

Booms, Busts, and Echoes: How the biggest demographic upheaval in history is affecting global development

For much (and perhaps most) of human history, demographic patterns were fairly stable: the human population grew slowly, and age structures, birth rates, and death rates changed very little. The slow long-run growth in population was interrupted periodically by epidemics and pandemics that could sharply reduce population numbers, but these events had little bearing on long-term trends.demography, growth, global development

Global Demographic Change: Dimensions and Economic Significance

Transitions from high mortality and fertility to low mortality and fertility can be beneficial to economies as large baby boom cohorts enter the workforce and save for retirement, while rising longevity has perhaps increased both the incentive to invest in education and to save for retirement. We present estimates of a model of economic growth that highlights the positive effects of demographic change during 1960-95. We also show how Ireland benefited from lower fertility in the form of higher labor supply per capita and how Taiwan benefited through increased savings rates. We emphasize, however, that the realization of the potential benefits associated with the demographic transition appears to be dependent on institutions and policies, requiring the productive employment of the potential workers and savings the transition generates. Economic projections based on an "accounting" approach that assumes constant age-specific behavior are likely to be seriously misleading.

Global Demography: Fact, Force and Future

In the past 50 years, the world accelerated its transition out of long-term demographic stability. As infant and child mortality rates fell, populations began to soar. In most countries, this growth led to falling fertility rates. Although fertility has fallen, the population continues to increase because of population momentum; it will eventually level off. In the meantime, demographic change has created a ‘bulge’ generation, which today appears in many countries as a large working-age population. This cohort will eventually become a large elderly population, in both developed and developing countries. Population growth has been the subject of great debate among economists and demographers. Until recently, most have agreed on a middle ground, in which population growth per se has no effect on economic growth. New evidence suggests that changes in the age structure of populations – in particular, a rising ratio of working-age to non-working-age individuals – leads to the possibility of more rapid economic growth, via both accounting and behavioural effects. The experiences of east Asia, Ireland and sub-Saharan Africa all serve as evidence of the effect of demographic change on economic growth (or lack thereof). Both internal migration (from rural to urban areas) and international migration complicate this picture. The overall implications of population growth for policy lie in the imperative for investments in health and education, and for sound policies related to labour, trade and retirement. Understanding future trends is essential for the development of good policy. Demographic projections can be quite reliable, but huge uncertainties – in the realms of health, changes in human life span, scientific advances, migration, global warming and wars – make overall predictions extremely uncertain.demography, growth, forecast, Asia, Ireland, Sub-Saharan, Africa

The Height of Women in Sub-Saharan Africa: the Role of Health, Nutrition, and Income in Childhood

Most of the variation in height across countries in Sub-Saharan Africa is due to fixed effects, however, we find that variations in cohort height over time are sensitive to changes in infant mortality rate, GDP per capita, and protein intake, both at birth and in adolescence.Infant Mortality, Nutrition, Women’s Height, Stature, Sub-Saharan Africa

The social rate of return on infrastructure investments

The authors estimate social rates of return to electricity-generating capacity and paved roads, relative to the return on general capital, by examining the effect on aggregate output and comparing that effect with the costs of construction. They find that both types of infrastructure capital are highly complementary with other physical capital and human capital, but have rapidly diminishing returns if increased in isolation. The complementarities on the one hand, and diminishing returns on the other, point to the existence of an optimal mix of capital inputs, making it very easy for a country to have too much - or too little - infrastructure. For policy purposes, the authors compare the rate of return for investing in infrastructure with the estimated rate of return to capital. The strong complementarity between physical and human capital, and the lower prices of investment goods in industrial economies, means that the rate of return to capital as a whole is just as high in rich countries as in the poorest countries but is highest in the middle-income (per capita) countries. In most countries the rates of return to both electricity-generating capacity and paved roads are on a par with, or lower than, rates of return on other forms of capital. But in a few countries there is evidence of acute shortages of electricity-generating capacity and paved roads and, therefore, excess returns to infrastructure investment. Excess returns are evidence of suboptimal investment that, in the case of paved roads, appears to follow a period of sustained economic growth during which road-building stocks have lagged behind investments in other types of capital. This effect is accentuated by the fact that the relative costs of road construction are lower in middle-income countries than in poorer and richer countries. As a rule, a tendency to infrastructure shortages - signaled by higher social rates of return to paved roads or electricity-generating capacity than to other forms of capital - is symptomatic of certain income classes of developing countries: electricity capacity in the poorest, paved roads in the middle-income group. To the extent that such high rates of return are not detected by microeconomic cost-benefit analysis, they suggest macroeconomic externalities associated with infrastructure.Decentralization,Banks&Banking Reform,Fiscal&Monetary Policy,Economic Theory&Research,Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Environmental Economics&Policies,Public Sector Economics&Finance,Inequality

Increasing life expectancy and optimal retirement:does population aging necessarily undermine economic prosperity?

In this paper we analyze the eects of changes in longevity and the pace of technological progress on interest rates, savings behaviour and optimal retirement decisions. In so doing we embed the dynamic optimization problem of choosing a life-cycle consumption path and the retirement age into a general equilibrium setting. Thereby we assume that technology evolves exogenously and the production side of the economy can be described by means of a neoclassical production function. Our results show that (i) the aggregate capital to consumption ratio increases and interest rates decrease in response to increases in longevity; (ii) the response of the optimal retirement age to increases in longevity is ambiguous. However, for reasonable parameter values the optimal retirement age increases in longevity; (iii) the aggregate capital to consumption ratio decreases and interest rates increase in response to faster technological progress; (iv) the response of the optimal retirement age to faster technological progress is ambiguous. However, for reasonable parameter values the optimal retirement age increases in the pace of technological improvements.endogenous retirement, life-cycle savings, population aging, technological progress, economic prosperity

Structural stability and robustness to bounded rationality

The introduction of a small amount of bounded rationality into a model sometimes has little effect, and sometimes has a dramatic impact on predicted behavior. We call a model robust to bounded rationality if small deviations from rationality result only in small changes in the equilibrium set. We also say that a model is structurally stable if the equilibrium set (given fully rational agents) varies continuously with the parameter values of the model. Our notions of a model and of rationality are quite broad, allowing us to cover cases in which bounded rationality refers to imperfect optimization, non-rational expectations, or arbitrary behavior by a subset of agents. We show that a model is robust to bounded rationality if and only if it is structurally stable. Thus, we can characterize which models will be robust to bounded rationality and which ones will not, independently of the exact form that bounded rationality takes. In addition, from our characterization it follows that introducing a small amount of bounded rationality will have large effects on predicted outcomes if and only if parameters are near a critical point where the equilibrium set changes in a discontinuous way JEL classification: C69, C79, D51, E19

The Effect of Population Health on Foreign Direct Investment

We conduct a panel data analysis of 74 countries over 1980 2000 to investigate whether population health affects foreign direct investment inflows. Our main finding is that health has a positive and significant effect on such inflows for low- and middle-income countries. This finding is consistent with the view that health is an integral component of human capital in developing countries.